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The Theranos Scandal: What Happens When You Misunderstand Steve Jobs

We’ve long known that Elizabeth Holmes was in trouble, and last Friday federal prosecutors brought criminal charges against the founder of Theranos for defrauding investors and deceiving patients and doctors. In Bad Blood: Secrets and Lies in a Silicon Valley Startup, two-time Pulitzer Prize winner John Carreyrou, who two and a half years ago first raised questions about the blood testing company’s technology, plumbs the appalling depth of Holmes’ deceptions. One of the greatest of those deceptions—or was it a delusion?—was Holmes’ portrayal of herself as the next Steve Jobs.

Elizabeth Holmes (L) and Alan Murray speak at the Fortune Global Forum at the Fairmont Hotel on... [+] November 2, 2015 in San Francisco, California. (Photo by Kimberly White/Getty Images for Fortune)

While we already knew that she adopted Jobs’ trademark black turtleneck, we learn from Carreyrou that she referred to her company’s blood testing product as the “iPod of healthcare.” She moved about in a black car without license plates, as Jobs had. She hired Apple veterans. She even engaged Apple’s advertising agency. After Jobs died, she aped things she learned about him from the Walter Isaacson biography.

Unfortunately for Holmes and the credulous investors in Theranos, she completely misunderstood Jobs and his brilliant instincts in the founding of Apple. Here are correctives for five of her most disastrous misunderstandings:

Holmes had neither the experience nor skills to lead a medical device company of any size, let alone one that was pioneering new technologies and expected to grow quickly. Nor did Steve Jobs have the experience or skill to run a fast-growing computer company. But, to his great credit, he knew it. So he sought out Regis McKenna, the most famous tech marketer of the time, who advised him to find someone who could help him realize his grand vision. After seeking the advice of other experienced tech executives, Jobs hired Mike Markkula, who almost immediately hired Mike Scott as CEO. Both Mikes had successfully led major projects and operations at high-profile semiconductor companies.

Holmes acted as a virtual dictator at Theranos in concert with her lover and mentor Ramesh Balwani, who also had no medical device experience (and has been indicted along with her). Employees’ emails were monitored. Anyone who disagreed with her was fired. As a condition of investing, she insisted on provisions that prevented her from ever being removed as Chair and CEO. (She retained those titles in the nearly bankrupt company till now, relinquishing only her CEO title on Friday.)

2. From the start, Steve Jobs teamed with a technical wizard and respected his expertise.

Apple’s cofounder Steve Wozniak was a gifted electronics engineer with whom Jobs vigorously debated design decisions. Both men held strong opinions but were willing to concede in the face of a better argument. With the Apple II, Jobs wanted to use the superior Intel DRAM memory but won the day only after he proved they could procure the Intel chips for the same cost as the ones Wozniak had chosen. Meanwhile, Wozniak solidified the computer’s code and architecture around a rarely used Motorola microprocessor that Apple’s distributor felt was a major mistake. Jobs backed Wozniak.

By contrast, Holmes chose an unqualified cofounder and refused to listen to employees who were technically proficient. The co-founder was a recently minted Ph.D. who had biomedical research experience but lacked the skills or experience to develop biomedical analytic devices. Holmes herself had completed a grand total of two undergraduate courses in chemical engineering. Soon after her first round of fundraising Holmes hired people with appropriate technical expertise, but their influence with Holmes waned as the company’s attempts to miniaturize blood assaying stalled. The highly respected Channing Robertson, Holmes’ Stanford professor and Theranos board member, does not appear to have spent time with the development team to help overcome stumbling blocks or to debate the rationale of the technology. And in Carreyrou’s telling, Robertson was easily placated by periodic rosy updates from Holmes.

3. Steve Jobs envisioned things that were challenging and expensive, not impossible.

Jobs knew that it was possible to create the Apple II because Wozniak already had a working prototype. Jobs also knew that it was possible to fashion a plastic case for the machine because plastic cases existed for other electronic devices. Later, Jobs’ visions for the Lisa and Mac were anchored on the fully functional GUI operating system he had seen at the Xerox Palo Alto Research Center (PARC). He quickly set up a team at Apple—and recruited the needed expertise—to reproduce and improve what he had seen. Even so, the project still took years to succeed, delaying the introductions of both the Lisa and the original Macintosh.

Holmes envisioned something that had never been done before. According to Carreyrou, she thought that she was miniaturizing blood assaying devices as Apple had done with the disc drive and operating system of the first iPod. But Jobs knew of a major supplier of disc drives that could already meet Apple’s miniaturization specifications, and he also knew that the needed software existed at PortalPlayer. Holmes needed to miniaturize by a hundred-fold the various machines required to perform the blood assays she claimed Theranos could perform in a box the size of a microwave oven. No amount of money could have accomplished that vision—the underlying technologies hadn’t even been invented yet.

4. Steve Jobs wanted to delight his customers.

Steve Jobs famously said that “it's really hard to design products by focus groups; a lot of times, people don't know what they want until you show it to them.” But that doesn’t mean that he didn’t want to please his customers. Jobs spent a great deal of time observing how people, mostly teenagers, used Wozniak’s Apple I product inside the Byte Shops where they were first offered. He took those observations back to the small team working on the Apple II, which led to the team’s brilliant inclusion of keyboard, TV driver, cassette interface and BASIC software. And Mike Markkula and Mike Scott made sure the company turned out uniformly high-quality units.

Theranos introduced products that did not work and that could do customers a great deal of harm. As a former Theranos lab director told Carreyrou, a false positive on a blood test might cause a patient to have an unnecessary medical procedure. A false negative was worse: a patient with a serious condition that went undiagnosed could die. Yet Holmes forged ahead, entering partnerships with Walgreen’s and Safeway after telling them falsely that the Theranos machines could perform hundreds of tests from small blood samples.

5. Secrecy was not the secret of Apple’s success.

Jobs understood that secrecy was necessary in the ultra-competitive world of consumer electronics—lots of money could be made each month a hit product was on the market without copycats. So he kept the existence of projects at Apple secret from anyone not directly involved in them. But everyone working on a secret project knew everyone else on it and the leaders of each of the independent groups contributing to its success regularly briefed each other.

By contrast, Holmes worked almost obsessively to make sure that the departments working on the Theranos technology kept secrets from each other. The designers didn’t communicate with the engineers, who didn’t communicate with the chemists, who didn’t communicate with the designers. Each department was running tests on its part of the system, writes Carreyrou, but no one was conducting tests of the over all system. As anyone who has been involved in the development of a complex system knows, everyone involved must communicate directly and frequently with one another—indeed sophisticated project management systems are required just to help keep track of all the communication that’s required.

Most people, including me, wanted to see Elizabeth Holmes succeed—rejoicing in the technology she envisioned and welcoming a role model for female entrepreneurs. But no one can succeed in the monumental tasks she set for herself without the requisite leadership and technical skills.

Ironically, the former Apple personnel who had worked closely with Jobs were among the first to recognize the profound problems at Theranos. Within a few years of its founding all had been fired for raising questions or had left in disgust. They understood what Jobs was really about; Elizabeth Holmes did not. Aspiring entrepreneurs beware: naïve imitation of Steve Jobs is not only the sincerest form of flattery, it is a sure route to failure and, in Elizabeth Holmes’ case, much worse.

If you enjoyed this article, I encourage you to check out my latest book: Building On Bedrock: What Sam Walton, Walt Disney, and Other Great Self-Made Entrepreneurs Can Teach Us About Building Valuable Companies.

I am a successful entrepreneur who researches and teaches entrepreneurship, creativity and innovation, at Princeton University. My two bestselling books on

…

I am a successful entrepreneur who researches and teaches entrepreneurship, creativity and innovation, at Princeton University. My two bestselling books on entrepreneurship, “Building on Bedrock: What Sam Walton, Walt Disney, and Other Great Self-Made Entrepreneurs Can Teach Us About Building Valuable Companies” (2018) and “Startup Leadership” (2014) focus on what it really takes to succeed as an entrepreneur and the leadership skills required to grow a company. Prior to joining the Princeton faculty, I was founder and CEO of iSuppli, which sold to IHS in 2010 for more than $100 million. Previously, I was CEO of global semiconductor company International Rectifier. I have developed patents and value chain applications that have improved companies as diverse as Sony, Samsung, Philips, Goldman Sachs and IBM, and my perspective is frequently sought by the media, including the New York Times, Wall Street Journal, Economist, Bloomberg BusinessWeek, Nikkei, Reuters and Taipei Times.